Pricing of Market Data

Financial trading venues have two main revenue streams; trade execution and selling of financial market data. While liberalisation of trading venues the past fifteen years has succeeded in creating competition on the execution part, trading venues hold monopoly on their market data. The result is an inadequate and very costly access to market data for market participants:

• Revenue from market data for the European trading venues is in the range EUR 50 to 200 million. We assess the direct costs of distributing the market data to be lower – probably below EUR 10 million for most venues.
• Since the mid-2000s, market data fees have increased in the range of 30-60%, net of inflation. This is despite a heavy cost reduction in the underlying technology used.
• Trading venues have tightened their auditing process and more than doubled the number of different fees in their fee schedule in the past decade.

The elevated market data has several negative effects for financial market efficiency and end-users:

• Security dealers provide limited access to view market data for making the investment decisions less informed.
• Limitations in market data can give rise to less precise pricing of securities, more volatile and less liquid markets.
• Ultimately, this leads to higher cost of capital, in particular for SMEs, and lower risk-adjusted return for investors such as pensions funds.

To cope with the issues, we recommend the competent regulatory authorities to:

• Regulate and simplify the access and fee structure of market data.
• Implement a price cap on market data based on a Long Run Incremental Cost (LRIC+).
• ESMA assuming its role as a single EU supervisor.

 The study is commissioned by the Swedish and Danish Security Dealers Associations.